Budget May Make or Break Davis

SACRAMENTO —  At midday today, Gray Davis begins his second term as governor, facing a fiscal crisis that could cripple his political career.

But the state’s projected $34.8-billion budget gap also presents the sort of grand challenge that could restore the governor’s stature in the eyes of Californians -- and preserve his political viability if he hungers for higher office, analysts say.

On a more personal level, it’s a chance for Davis to counter a charge that he bitterly resents: that he bungled the greatest leadership test of his first term, the 2000-01 energy crisis.

“It’s a tremendous opportunity for Gray Davis,” said Darry Sragow, a Democratic political strategist. “We’re not going to get through it without someone acting as a leader. And, institutionally, the only person who can do that is the governor.”

Davis will give Californians an outline of his game plan over the next five days. He will sketch his second-term vision in his inaugural address today and State of the State speech Wednesday; then Friday he’ll present a plan for closing the huge budget gap.

“He’s going to be giving three speeches this week about tough, not very pleasant, things,” Davis advisor Nancy McFadden said Sunday. “He’s determined to lay out the truth and speak plainly about them.”

In his speeches, Davis will emphasize the revival of California’s economy as his top priority. He will propose new employment initiatives, including accelerating the construction of schools and housing using $20 billion in bonds approved by voters, advisors said.

He also will touch on the central themes of his two gubernatorial campaigns, including his support for abortion rights, gun control and environmental protection. He will make the case that his positions on those issues are in line with mainstream public opinion in California -- at a time when President Bush and the Republican majority in Congress are pressing a more conservative national agenda, a Davis advisor said.

Whatever Davis says or aspires to achieve, agonizing budget choices will dominate the week, and at least half his term. And these choices will force the famously inscrutable governor to lay his convictions on the line as never before, according to Davis advisors and other Capitol veterans.

“What he accomplishes these next four years will define his governorship,” said Susan Kennedy, his Cabinet secretary. “This is his dream job, and this is his last shot as governor.”

To lead the state through the financial thicket ahead, Davis must cobble together a consensus between the Legislature’s polarized factions: Democratic legislators who oppose deep cuts in social programs and Republicans who oppose tax increases. Both remedies are needed to address the budget shortfall projected over the next 18 months, experts said.

Davis will have to pull off this difficult feat with his political clout weakened after an unimpressive reelection victory in November. Despite having spent about $65 million against his error-prone and poorly funded Republican rival, Bill Simon Jr., Davis won by only 5 percentage points.

“To spend all that money to wind up where he did has got to be a very sobering experience for a politician,” said Mark Baldassare, research director at the Public Policy Institute of California.

Critics have long depicted Davis as a cold, calculating politician, more interested in raising money and running for higher office than in shaping public policy. Polls throughout the campaign showed that many Californians held the same views.

Davis supporters say his detractors have poisoned public opinion by distorting the governor’s handling of the energy crisis, his fund-raising activities and other issues.

Both sides agree that Davis must overcome these negative perceptions to regain the favor of California voters and enhance his national stature.

“If he wants to have a future, he has to change his image,” said Kevin Spillane, a Republican strategist.

Stung by criticism that he was slow to react to electricity shortages during his first term, the governor has tried to project decisive leadership on the budget since the November election.

In December, he proposed $10 billion in spending cuts and revenue increases over the next 18 months and called the Legislature into special session to consider the measures. He has moved to smooth strained relations with legislative leaders and replaced his finance director with former state Sen. Steve Peace, a respected, blunt-speaking Capitol insider.

Relieved of the pressure of a looming election, Davis and the Legislature have the latitude to aggressively attack the fiscal crisis, without fear of immediate political consequences. But many legislators are looking to Davis to set the agenda and lead the search for solutions.

“The state has a serious problem,” said Senate leader John Burton (D-San Francisco), the Legislature’s leading liberal and Davis rival. “He’s the captain of the ship. He’s got to lay out a course.”

Lawmakers are searching for signs that the governor intends to play a leading role in this year’s budget debate, several legislators said.

“I would like for him to say, ‘For every dollar cut, we’re going to add a dollar’ ” by raising taxes or fees, said state Sen. Sheila Kuehl (D-Santa Monica), an influential Davis ally. “That kind of specificity and firmness would help. Then [Republicans] may think they have to begin negotiating and can’t just sit out there and say, ‘No revenue increases.’ ”

Other legislators say Davis must use the prestige of his office to sell Californians on the painful cutbacks and tax increases needed to address the budget crisis.

“The governor has the ability to attract media attention if he were just taking a walk to the local Baskin-Robbins,” said Assembly Speaker Herb Wesson (D-Culver City). “I think you use your position as a soapbox to promote certain things.”

Regardless of what Davis says this week, the governor’s rocky relationship with the Legislature’s liberal Democrats and Republican minority will continue to be a challenge through his second term.

Democratic strategist Richard Ross said Davis has made his job more difficult by failing to cultivate key legislators and thwarting the initiatives of fellow Democrats. Ross cites as an example last year’s fight over a bill giving farm workers the right to mediation in stalled labor talks. It was Burton-led legislation that Davis delayed but eventually signed.

“Putting John Burton through the torture of the damned to get a signature on that bill was probably unnecessary,” Ross said. “Lots of people have their own versions of that.”

Davis advisors, however, say the governor is a hard sell when it comes to sweeping legislation, because he believes people want modest, cost-effective solutions to problems. That puts him in the unpopular position of toning down the grandiose plans of the Legislature’s dominant liberal Democrats, they say.

Still, Davis signed bills in his first term that broke ground nationally on paid family leave, gun control, HMO reform, gay rights and “greenhouse” gases.

“Those are not cautious things,” Kennedy said. “But he approached them from a very, very pragmatic position. He beat those proposals up until they were very pragmatic in his view, but they were first in the nation.”

In his first term, Davis managed to keep most -- but not all -- powerful Democratic constituencies happy. The baggage he carries into his final four years includes a running feud with the state teachers union, one of many influential groups lining up to pressure him and the Legislature for favorable treatment in budget decisions.

“It’s all about Gray Davis, Gray Davis’ survival, Gray Davis’ future,” said Wayne Johnson, president of the California Teachers Assn., who says the governor betrayed the union’s support in his first election by passing over its choices for state appointments. “His philosophy is: Do what the latest public opinion polls tell us we should do.”

Now Johnson is denouncing Davis for proposing to reduce school funding by $3.1 billion, the largest single chunk of the $10 billion in cuts the governor proposed in December.

“From what he’s shown so far, he’s just going to throw public education to the wolves,” Johnson said. “It’s just going to be devastating to public schools.”

It’s the sort of scorching rhetoric that Davis expects to hear a lot of this year, but the fact remains that painful cuts are unavoidable, advisors say.

“We don’t have the luxury of taking any half-measures right now,” Kennedy said. “The caution that I know the governor felt and other people felt last year -- you don’t want to throw somebody off health care if the economy is going to recover -- has passed. Last year we had a budget problem. This year it’s a crisis.”

That argument doesn’t wash with Republicans, who accuse Davis of making the budget hole worse by putting off unpopular spending cuts until after the November election.

Although constitutionally barred from another term as governor, Davis is widely assumed to be interested in running for president, or the U.S. Senate if Sen. Dianne Feinstein declines to seek reelection in 2006.

His vast network of campaign donors makes Davis a potentially attractive running mate for the Democratic presidential nominee next year.

He recently ruled out a campaign for president in 2004, but that hasn’t stopped speculation that he plans to use his second term to set the stage for his next campaign.

“Gray Davis is probably not saying to himself, ‘In January 2007, I’m heading out to the golf course for the rest of my life,’ ” said Sragow, the Democratic strategist.

Kennedy, however, said Davis is “focused solely in the immediate future,” not “a run for national office someday.”

Whatever the governor’s ambitions or motivations, it’s in his political interest to solve the budget problem this year, analysts say. The same goes for state legislators, many of whom face reelection in 2004.

“My sense is that he knows if he doesn’t fix it this year, he will have a bigger problem the next few years,” said Senate Republican leader Jim Brulte of Rancho Cucamonga.

Some analysts say an economic turnaround later this year could hand Davis and legislators a partial reprieve by reducing the size of the budget shortfall.

But Davis isn’t counting on an easy escape, advisors say.

“It’s on the front page every day: Bad news about the budget, bad news about cuts to programs, and every cut has a human face behind it,” Kennedy said.

“So it’s going to get a lot worse before it gets better.”